Optical equipment makers quantify COVID-19 impact

Financial markets are reeling as investors try to process the true impact of the spreading coronavirus, and of course the communications sector is not immune. Specifically, some makers of optical components for telecom networks have begun estimating the initial impact of the virus on their future revenues.

Neophotonics is reducing its first quarter revenue projection by $10 million, or roughly 10%. Lumentum, currently in its third fiscal quarter, is projecting a revenue hit of roughly 4%, or $15 million to $20 million. Applied Optoelectronics also said the coronavirus is impacting its projected revenue, but declined to quantify the impact.

"There are still significant unknowns with respect to the extent and duration of the impact to operations. At this point, we expect that these issues will be temporary as the situation in China gradually gets back to normal," said Applied Optoelectronics CEO Thompson Lin during the company's earnings call in February, according to Seeking Alpha transcript of the event.

Other vendors said they're keeping a close eye on the situation.

"We've literally got daily meetings going with our supply chain people," Neophotonics CFO Beth Eby told investors in February, according to a Seeking Alpha transcript of her remarks. "While we anticipate that supply chain impacts may extend beyond Q1, our suppliers are steadily increasing production, and we expect to be able to ship unfulfilled Q1 demand in subsequent periods." The company said suppliers remain below capacity, and that its own Chinese factories are currently running at about two-thirds of normal capacity.

"At this point, we believe very few suppliers are at risk of not being able to meet our current demand forecasts," explained CEO Tim Jenks on the Neophotonics earnings call. "But what we can't quite do right now is … we don't know what the level is going to be throughout Q2."

Applied Optoelectronics said its operation in Ningbo, China, was shut down for roughly two and a half weeks. As of late February, many workers were still absent.

"We are currently up and running again at approximately 70% of our normal capacity, which is improving steadily as our staff is able to return to work," CEO Thompson Lin told investors. "There are still significant unknowns with respect to the extent and duration of the impact to operations. At this point, we expect that these issues will be temporary as the situation in China gradually gets back to normal."

Applied Optoelectronics CFO Stefan Murry said reduced manufacturing capacity is just one of the ways coronavirus has impacted the company. He said the firm is also facing higher manufacturing costs as it moves some production to its facilities in Taiwan and the US. And of course there are supply chain issues, but the company is hoping those will be minimal.

"At this point, the vast majority of our suppliers in China have returned to work and we currently believe that we will not have constraints on our production capacity in Q1 due to virus-related supply chain disruption," Murry said on the company's call.

Murry added that coronavirus could have a longer term impact on demand for the company's products if it delays network rollouts for Applied Optoelectronics' customers.

Lumentum CEO Alan Lowe reminded investors that his company has been moving manufacturing out of China for three years, a move he suggested would lessen the impact of COVID-19 on the company's results. However, Lumentum still has roughly 1,000 people working in China, and Lowe said the virus will likely impact both supply and demand for the company's products.

"For some of our products, the supply of externally purchased material is being impacted," Lowe said. "The situation is obviously very fluid, but we are in close contact with our factory in China, impacted suppliers, as well as our customers."